Sharp rise in Jamaican$ value

NCB purchased US$32m and sold US$73m at J$130.16 on Thursday & drag the US$ down vs the J$.

The Jamaican dollar enjoyed a big rise in value against the US dollar with the rate for buying funds from the market falling to JS$131.72 and selling by dealers closing at an average of $131.52, down from J$133.06 buying and J$134.76 selling.
The sharp improvement in the value of the local currency may not last in the short term, as the drop in the value of the US dollar versus the Jamaican dollar, was due mostly to big trades by National Commercial Bank well below the average for the rest of the market. The market is now in a period of increased supplies and lower demand that is likely to result in further appreciation of the local currency until April unless the central bank intervenes to buy excess flows from the market.
At the end of 2019, the selling rate for the US dollar was J$127.716 but the currency depreciated during the year to a low of J$141.89 to the US dollar on November 7. National Commercial Bank bought US$32,148,142.99 at an average rate of J$129.83 and sold US$73,145,676 at J$130.16 each. The trade by the country’s largest commercial bank accounted for 48 percent of the total of US$67.5 million purchased and 70 percent of the US$104.3 million sold. After NCB, the next biggest trades were by Bank of Nova Scotia, in buying US$10.3 million, at an average of $132.60 and selling $7 million at $133.54.
The largest single purchase is US$25 million at $129 and the largest sale was US$68.35 million at J$130 each.

Muddled interest rate policy

The Bank of Jamaica’s website shows their inflation target for the 2019 to 2020 fiscal year ranging from four to 6 percent and they expect that such high levels of inflation should be achieved by 2020/21.
While the central bank announced these targets, the government just reopened their 2029 bonds that was originally had a fixed interest rate of 5.679 percent. Investors placed bids to buy $12.9 billion although only $4 billion were offered for sale. The average yield came out at 5.195 percent. Some investors placed bids as high as 9 percent but were unsuccessful.
To tie up money for 10 years when the central banks is targeting inflation above the yield of the bond on the surface is puzzling. That of course is one conclusion. The more probable one is that those who invested in these bonds are betting that the central bank will not see inflation anywhere close to the levels that are targeting. This publication is of the view that the latter is the correct position.
Something is clearly wrong with the monetary policy.

BOJ interest rate & cash reserves cut will help push demand in the economy.

Changes in interest rates should start having an impact on the economy within six months, experts say. At this stage based on the reduction in rates over the past year or more, economic growth should be picking up sharply. That is not happening and its crawling along around 2 percent pace according to the PIOJ, worse, a lot of the growth is coming from export of goods and services, not from pick up in local production of goods or services.
At the start of 2018, BOJ policy rate was at 3 percent today it at a mere 0.75 percent. That is a very sharp reduction within just over a year. The central bank has also in recent times cut the cash reserves levels thus creating more liquidity in the system.
With all of those moves, lending rates remain relatively high, with the only noticeable change, being rates on motor car loans. The worse signal of this is that credit card rates remain at nearly 50 percent per annum without a single point move. Mortgage rates remain unchanged or largely so, with one or two institutions offering new borrowers lower rates. The 225 percentage points cut in overnight rates (ON) should have induced an across the board reduction in lending rates under normal circumstances but that is not happening and is clearly showing that something is wrong with the policy.

National Commercial Bank pays very low savings rates

Some of the impediments to lower lending rates, are caught up in the very measure BOJ is pushing. Banks have a large pool of very low cost deposits and current account balances that pay zero interest rates. When rates are low, it is much more difficult to cut a rate that is just a fraction of a percent. Put another way, if banks are paying 0.5 percent or less savings accounts, how do they pass the BOJ rate cut onto savers, the ones that will bear the cost?
A visit to NCB website sets out the likely interest rates they pay on deposits. Up to $99,999, a saver would get a mere 0.05 percent, at $1m one would get 0.55 percent and 0.70 percent would be the payment for $5 million and over. These rates were at April 2018. This is the clearest sign why the BOJ policy has not worked and will not work. Since last year April, the overnight policy rate is down by 200 basis points. With rates on deposits at almost zero the banks have limited options to cut rates and if they did, it would not be anywhere close to the extent of the ON rate cut.
Reducing the cash reserves is a far better tool to cut lending rates. Banks with the large amount of profits reported and in many cases lousy service, are not the friends of a large cross section of Jamaicans. Like them or hate them they still provide a useful service. Companies generally, do not absorb cost, they pass them on to consumers. When governments place taxes on banks and other financial institutions with the mistaken view that they are taxing those entities, they are making a huge error. What taxes do is increase the cost of banks providing service to customers. That is one reason why some in the system want government to move and curtail bank charges. When banks were first slapped with the asset tax, they turned to fees for added revenues, to offset the increased tax.
Government, if they are serious about stimulating the economy by lower lending rates must bell the cat. First, they must accept that the cutting interest rates on deposits will not work as those rates are already close to zero. Keeping savings rate artificially low will also encourage more persons to revert to savings in US dollar and place pressure on the Jamaican dollar. At best, banks may cut a few points here or there off lending rates but it will make little difference.
Government must sit with the financial institutions and arrive at an agreement to cut taxes in exchange for reduced interest rate on loans and credit cards. That is the only way to effect serious loan rate reduction to stimulate the economy in the shortest possible time.
To continue with a low savings rate policy that is not sustainable is going to lead to a bubble in the segments of the economy and when the inevitable reversal starts, there will be pain, as asset values adjust to the increasing value of money.

JSE wants to double share ownership

The JCSD now has 154,500 shareholders on its registry with the near 12,000 new ones this month.

There are nearly 155 thousand investors listed as shareholders in the Jamaica Central Security Deposit but the Jamaican Stock Exchange (JSE) is planning to double that number in five years.
The number of local share ownership got a big boost from the 11,772 new investors who applied for shares in Jamaica’s recent IPO, Wigton Windfarms recently.
The addition of new investors pulled in by the new stock offer, brings the total to 5.5 percent of the country’s population. According to Marlene Street Forrest, Managing Director of the JSE, “the number based on the adult population is 12 percent. The aim is to get to 20 to 25 percent of the adult population in five years.” The numbers may not sound great deal but Jamaica ranks pretty high globally.
Data gleaned by IC Insider.com shows that just 12.3 percent of UK overall population own shares in public listed companies, stock ownership in India is not more than 2.5-3 percent of the total population. In 2011, Austria had 7 percent rate and Germany was around that of Jamaica at 5.6 percent while France was at 14.5 percent. The data is clearly saying that the world have not done a good job of educating the population about stock ownership.

NCB pulled in more shareholders in 1987 than any other listing on the JSE

The JSE will be using a variety of means to get the numbers up in Jamaica. Government’s divestments have the most telling impact in increasing the numbers of new investors. The major reason is the need for aggressive marketing of IPOs, of government entities, to get full take up of the shares.
According to an article written by Emma Simon of the British Telegraph newspaper, in April 2013,
“One of the lasting legacies of Margaret Thatcher’s administration was to enable and encourage millions of ordinary people to invest in the stock market. In 1979 just 3 million people owned shares, 7pc of the adult population. By the end of the Eighties one in four people – 12 million adults – owned shares. The boom was fuelled by a wave of privatisations in which many state-owned industries were sold to private investors.” The situation was similar in Jamaica, where the number of shareholders, estimated at around 10,000, but National Commercial Bank, Now known as NCB Financial Group, the first government divestment attracted more than 32,000 investors, more than tripling the number of shareholders.

Wigton attracts over 30,000 applicants

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Wigton IPO prospectus is out.

Wigton Windfarm’s recent IPO is said to successfully attracted more than 30,000 applications, for the 11 billion shares that were offered at 50 cents each, IC insider.com has been advised.
IC Insider.com gathers that the number could reach as much as 32,000 applications and is more than 100 percent oversubscribed. The number of applicants, suggest that the level of oversubscriptions is most likely lead to the issue being twice oversubscribed. Based on the formula announced for allocation that will see smaller applications getting full allocation, the top bidders are likely to be disappointed with what they end up getting that could see their take coming for 10 percent or less, depending on the amount applied for.
According to a release from Mayberry Investments lead brokers, “all Applicants (large or small) up to the first 10,000 shares will be met. Applicants in excess of 10,000 will then be met in similar fashion in increments of 10,000 until all applications are met or all shares are allocated”.
The number of applications seem to be close to the issue of National Commercial Bank in 1987 that attracted over 30,000 applications, with the issue being oversubscribed by 175 percent.
The oversubscription should result in a healthy liquid market, when the stock starts trading in a few weeks time.

The Lab, coming to a broker near you

NCB Capital Markets is readying a number of new public share issues to come to market by the summer this year.
Numbered amongst them are, The Lab that styles itself as a fully integrated 100 percent Jamaican born and bred advertising agency with global reach and an island swagger. “We are a strategic, creative, passionate solutions oriented and no nonsense group with a heavy emphasis on getting stuff done.” Kimala Bennett is the company’s Managing Director. Clients include National Commercial Bank, JPS, Wendy’s, Dominos, Supreme Ventures, Wray and Nephew, Grace Kennedy, Caribbean Broiler and Digicel. Persons in the know say this is one of those IPOs to plan for, it unique and profitable. QWI Investments is another that NCB Capital Markets is readying to take to the Jamaica Stock Exchange main market by early summer.

Kimala Bennett, Managing Director of The Lab.

Another that will be coming to market is Sagicor Select Funds Limited an Exchange Traded Fund. According to a note in the Sagicor Group audited financial statements, “It is the intention of the company to apply to the Board of the Jamaica Stock Exchange for admission of the shares to trading on the main market if subscriptions of at least $5 billion are raised.”
The above will come on top of the current public offer of Wigton Windfarm that opens next week to raise $5.5 billion, earmarked to be paid over to the government after expenses associated with the offer.

Jamaican dollar makes more gains

NCB had the highest net sale of US$ on Friday

The rate of exchange for the United States and Jamaican dollar inched further in favour of the local currency on Friday as dealers sold US$42.2 million at an average rate of $127.99 on Friday, down from an average of 128.126 with the sale of $67 million on Thursday.
On Friday, dealers bought US$37.38 million at an average of $126.74, a decline from $127.38 with the buying of US$61 million on Thursday.
Dealers bought $45,56 million in all currencies on Friday and sold US$50.28 million compared to purchases of US$77.6 million and sale of US$82.5 million on Thursday. Thursday’s trading includes the buying of Can$19.7 million and sale of Can$19.4 million.
Major net sellers of US dollars on Thursday are, Citibank with the purchase of US$160,000 and sale of US$1.65 million, First Global Bank buying US$271,000 and selling US$1.96 million. JMMB Bank ended with the buying of US$839,000 and selling $3.6 million, JN Bank purchased $868,000 and sold $2.48 million, Victoria Mutual Building Society bought $720,000 and sold of $2.45 million but First Caribbean purchased $5.6 million and sold just $1.38 million.
On Friday, Bank of Nova Scotia purchased $9.2 million and sold just $5 million, First Caribbean Bank bought US$813,000 and sold US$1.3 million, JMMB Bank ended buying US$1.87 million and sold $4.8 million, JN Bank purchased $1.16 million with sales of $1.87 million. National Commercial bought US$3.56 million and sold $8.5 million, Sagicor Bank bought $852,000 while selling US$1.99, Victoria Mutual Building Society purchased $693,000 and sold $1.3 million but Citibank purchased US$1.7 million and sold just US$587,000.

J$ revaluation leads to more US$ selloff

On Tuesday dealers purchased US$39.6 million from the public at $127.50 and sold $44.86 million at an average of $128.63 down from $128.93 on Monday.
On Monday, Bank of Nova Scotia bought US$14.27 million and sold $11.68 million on Monday and on Tuesday bought US$5.6 million and sold $10.1 million while National Commercial Bank bought US$8.66 million and sold US$18.95 million on Monday and on Tuesday bought $4.1 million and sold $9.5 million. Sagicor Bank bought US$1.96 million but sold $9.92 million on Monday and on Tuesday purchased $787,000 and sold $1.89 million. JN Bank sold $6 million on Tuesday having bought just $1.6 million and Victoria Mutual Building Society bought US$3.1 million and sold just $347,000.
In foreign exchange trading, dealers in total bought US$56.13 million and sold $73.36 million, representing a net sale of US$17 million on Monday. Purchases of all currencies on Monday amounted to US$60.64 million and selling of $76.95 million and on Tuesday, purchases of all currencies amounted to US$45.44 million and selling of $59.3 million. Including in the trade was the purchase of can$4.68 million and sale of Can$17.16 million.
The sell off of US dollar is unlikely to be coming from stock piling of foreign currency and may be coming from banks selling the currency short hoping to buy back at a lower price in the winter months when the supply is expected to be higher. The financial institutions are also earners of foreign exchange from loans, bonds and fees on foreign currency accounts and would have some of these to sell.

NCB Q2 profit rises 22% before tax

 

NCB Head Quarters in Kingston Jamaica.

NCB Financial Group recorded an increase of 17 percent in net profit of $11 billion for the six months ended March 2018 over the prior year, pretax profit for the six months was up just 1 percent.
Profit for the March quarter before taxation, rose a strong 22 percent over the similar quarter in 2017 to $8.26 billion but with taxation more than doubling profit after tax climbed just 9 percent to $6.4 billion.
Net operating income grew 22 percent to $35.3 billion over the prior year and 26 percent for the latest quarter. Improvements in foreign currency and investment activities 109 percent in the quarter to $4 billion and by 97 percent in the six months period to $7.2 billion. Net interest income increasing by $1.3 billion or 9 percent and was driven by the consolidation of Clarien Group (CGL). Net fee and commission income grew by 11 percent or $749 million, mainly as a result of higher transaction volumes for point of sale and e-commerce channels, increased investment banking and pension fee income and the consolidation of CGL. Operating Expenses excluding loan loss provision rose 30 percent to $24.5 billion for the half year and 29 percent to $11.5 billion for the quarter.
The Group’s loans and advances, net of provision for credit losses, increased by $127 billion or 61 percent to $334 billion to March. In addition to the consolidation of CGL, the president Patrick Hylton reported that “there was growth in all business segments’ loan portfolios: retail up 22 percent, corporate up 11 percent and credit card receivables up 25 percent. Nonperforming loans totalled $15 billion up from $5.9 billion at the end of March 2017.” The increase was due to the inclusion of CGL which has a non-performing loan ratio of 9.9 percent.
NCB declared a dividend of 70 cents stock unit. The dividend is payable on May 28, for stockholders on record at May 11. The stock closed at $95 on the Jamaica Stock Exchange before the results were released.

FCIB 2nd Caribbean bank to abort US listing

 

FirstCaribbean aborts IPO for NYSE listing.

Firstcaribbean International Bank (FCI) announced that they have withdrawn their planned initial public offering ahead of its plan to list on the New York Stock Exchange.
The Trinidad and Tobago Stock Exchange advised today, that they received notice from FCI advising of the withdrawal of the US registered public offering and listing of its shares on the NYSE in view of market conditions at this juncture. FCI had filed a registration statement in December 2017 relating to this public offering and proposed listing on the NYSE under the symbol “FCI”.
The company is the second Caribbean based banking group to have moved forward with plans to list on that stock exchange. The first was NCB Group in 2013, incurring a $680 million hit from the costs relating to aborted Initial Public Offering (IPO) in the 2013 fiscal year to September, according to the company’s audited financial statements.
The banking group was attempting to raise fresh capital in the international market, during the turbulent period ahead of the country reaching an agreement with the International Monetary Fund (IMF). The amount involved was written off against income thus helping to depress profits for the year.

NCB lost $700M in its aborted NYSE IPO plans in 2013.

Since then NCB has gone on to report record profits in 2017 with a 28 percent increase in the first quarter to December last year. At the same time FCIB that struggled for several years as it was battered by Caribbean countries in deep recession only saw a rebound in fortunes in recent years.
In 2013, the FCIB group adjusted profit was just US$35 million rising to $83 million in 2014 and onto $123 million the following year then $143 million in 2016 and $151 million last year, but revenues have just barely grown as loans have stagnated with US$6.36 billion in 2017 from US$6.3 billion in 2013.

Minority owners disrupt NCB’s Guardian offer

NCB Financial Group has advised that the offer to acquire up to 62 percent of Guardian Holdings shares lapsed due to failure for condition 2.4.5 of the Offer.
The conditions in summary stipulates that the conclusion of the offer is subject to there being no action instituted or threatened or investigation by government or its bodies or legal action that may delay the completion of the offer or make it illegal.
At the end of Friday 23rd February, there are terms and conditions of the Offer which remain outstanding a release from NCB stated, as such and in accordance with the provisions of the Securities Industry (Take-Over) By-Laws, 2005 the Offer lapsed.
The latest tally of offers received showed 535 Guardian shareholders tendered approximately 91,743,975 shares which, together with the NCB existing shareholding, represents approximately 70.24% of the outstanding GHL Shares. No shares deposited have been taken up by the Offeror.
NCB future states that the Trinidad and Tobago Securities and Exchange Commission has decided to convene a hearing in accordance with the provisions of the Securities Act, 2012 in respect of the facts and circumstances surrounding the Offeror’s equity interest in GHL and the issuance of the Offer Circular.